NZD/USD seesaws around mid-0.6200s ahead of RBNZ Inflation Expectations

• NZD/USD pares the first weekly loss in three amid mixed concerns.
• US employment data for July propelled hawkish Fed bets, China’s aggression in Taiwan issue contributed to the firmer USD.
• Weekend trade data from China appeared to have offered immediate upside ahead of the key New Zealand inflation expectations for Q3.
• US trade calendar remains light for the day, US CPI for July will be important to watch this week.

NZD/USD begins the trading week on a firmer footing, despite the latest retreat to 0.6235, as the pair traders await Reserve Bank of New Zealand’s (RBNZ) third quarter (Q3) inflation expectations. The quote’s latest strength could also be linked to the weekend data from China. However, fears of the Fed’s aggression and Beijing’s latest military drills surrounding Taiwan appeared to have probed the pair buyers of late.

During the weekend, China’s trade numbers for June marked upbeat results with the Exports rising the most in the year. That said, the headline Trade Balance rose to $101.26B versus $90B forecasts and $97.94B. Further details suggest that Exports increased by 18% compared to 15% expected and 17.9% prior whereas the Imports eased to 2.3% compared to 3.7% expected and 1.0% prior.

On the other hand, Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation. Considering China’s role in the global commodity market, the latest Sino-American tussles over Taiwan negatively impact the NZD/USD prices.

Elsewhere, a firmer US employment report for July underpinned hawkish Fed bets and recalled the US dollar bulls, allowing the US Dollar Index (DXY) to snap a two-week downtrend. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

Considering the data, San Francisco Fed President Mary Daly said during the weekend that the Fed is far from done in combating inflation. The policymaker also added, “50 bps increase is definitely in play. We need to keep an open mind.”

Amid these plays, Wall Street benchmarks closed negative and the US 10-year Treasury yields rallied to 2.83%, up 14 basis points (bps), to renew the US dollar strength.

Moving on, NZD/USD traders should pay attention to the RBNZ Q3 Inflation Expectations, prior 3.29%, for fresh impulse amid the calls of the hawkish Fed bets. The recent mismatch between the consumer and business inflation expectations appears to make the case interesting. Should the data print upbeat numbers, the Kiwi pair may have some reason to consolidate the first weekly loss in three amid a likely quiet day ahead.

Technical analysis

A three-month-old horizontal support zone surrounding 0.6210-0.6195 restricts immediate NZD/USD downside. However, downbeat oscillators and sustained trading below the two-month-old falling resistance line, around 0.6320 by the press time, appear to keep sellers hopeful.